Why AOL Came Back While Yahoo Came Up Short

Despite similar origins as Web 1.0 content portals, Yahoo’s inability to shake its roots and AOL’s decisive transformation into an ad tech company sent the two down starkly different paths, even as they both landed beneath Verizon’s big red checkmark: the communications giant purchased AOL for $4.4 billion last May and revealed its intention to buy Yahoo for $4.8 billion on Monday.

But Yahoo’s sale comes after an extended period of shareholder unruliness – whereas AOL’s story, quarter over quarter, was one of dramatic growth driven by its ad tech acquisitions. So why was AOL lauded while Yahoo – also an ad tech acquirer – derided?

“But it started losing shareholder confidence because even though its revenues were holding steady, spend on online advertising was growing and its competitors (Google and Facebook) were taking the lions' share of that growth,” she said. “This created a huge decline in stock price for Yahoo, which resulted in the board seeking an acquisition and the ultimate low purchase price for Verizon.”

VanBoskirk as well as other research analysts, financial analysts and ad execs all believe Yahoo’s adherence to its roots as a media company – even as that business lost value – caused its fall from grace in the eyes of its shareholders.

By contrast, AOL pivoted into ad tech.
“They shed quick and got to core technologies and assets,” said Ray Wang, principal analyst and founder of Constellation Research. “They realized that investing in core ad tech was their future.”

VanBoskirk echoed the sentiment: “I'm not sure I would say AOL is a great ad tech company (it has a very complicated tech stack). But it did sort of stop being an online media destination, which allowed it to strategically emphasize its individual assets instead.”

One ad tech insider familiar with Yahoo’s business noted that publishers in decline should invest in ad tech as a means to push demand to other pubs’ inventory. The hope is that revenue generated by ad tech can replace the depleting pool of publisher revenue.

To be fair, Yahoo didn’t ignore ad tech, and AOL didn’t ignore publishing. When Tim Armstrong became AOL’s CEO in 2010, he oversaw the purchase of TechCrunch and the Huffington Post and brought with him Patch Media, the local news website he co-founded, which has since been spun off. And after Marissa Mayer became Yahoo CEO in 2012, she purchased ad tech companies like mobile solutions company Flurry and video ad platform BrightRoll, both in 2014.

“The common thread is that even through all those acquisitions, Yahoo never committed to an ad tech strategy and were always conflicted over whether they were a publisher or an ad tech company,” said a source familiar with Yahoo.

While Mayer was supportive of her various ad tech buys, her interests centered around Yahoo’s content products, and she focused on the TV shows she was licensing for Yahoo’s video portal or on Tumblr. This wasn’t a surprise, given Mayer’s background at Google, where she built her rep acquiring users for Google’s products.

Similarly, all of Mayer’s big public bets – Tumblr being her largest and most painful example – were designed to drive use of Yahoo’s products.

“She was on the consumption side,” the source said. “As Google has shown, Facebook has shown, Snapchat has shown, if you get the usage, you can get the money. But it’s awfully hard to get the usage. The problem for Yahoo is everyone has left the brand.”

The problem with Mayer’s 2014 ad tech spree is that it was too little too late. All her prior acquisitions, as one ad tech exec speaking on background said, were scattershot and plays for talent. That soon became a problem, said Elgin Thompson, managing director of Digital Capital Advisors.

“Many of Marissa’s acquisitions were acquihires,” he said. “Even before she got there, Yahoo could not keep talent in-house. So there was a bleeding of true IP walking out the door every single day. What I observed is that some of these acquisitions were just to get talent in the door. And in many cases, they had to overpay even for acqui-hires.”

Once Mayer established a reputation of overpaying for acqui-hires, the Yahoo board and investors became wary of her other bets. In 2014, Mayer made herself a presence at CES and at Cannes to promote Yahoo Advertising, an initiative meant to unify Yahoo’s various ad capabilities.

It was nice rhetoric, but few people bought in. Most industry observers felt Yahoo Advertising was more aspirational than actual. After all, Yahoo Advertising was an unproven endeavor, built on the graves of two of Yahoo’s most prominent ad tech solutions: Right Media Exchange (RMX) and Genome.

“In a textbook, you build it and reveal it to the world,” Thompson said. “For Yahoo, because of the previous missteps and the challenges Mayer faced, she had to promote what she’d like to do, and the market said, ‘Well, that’s great. You’re well behind everyone else, but it’s great you’re trying to catch up. But you get no credit in stock.’”

Indeed, Mayer acknowledged in her Q2 2014 earnings call that Yahoo was lagging, saying Yahoo’s ad platform needed to get to “parity” with its competitors.

An ad tech exec noted how more big talk happened around the time of the BrightRoll acquisition in late 2014, when Mayer started spinning a tale of potential growth around an initiative called MaVeNS. At the same time, she was facing down a group of activist investors in the form of a hedge fund called Starboard Value.

But even before Mayer’s tenure, Yahoo struggled to figure out what to do with the ad tech it acquired, including BlueLithium (2007), Dapper (2010) and Interclick (2011). After it acquired RMX in 2007, Yahoo declined to invest in the exchange even as competing products from Google and AppNexus took share away. Key execs like Ramsey McGrory and Bill Wise departed, and in January 2015, after letting it linger on its deathbed for a year, Yahoo officially put RMX out of its misery.

“There hasn’t been a revolving door of CEOs who had to put their imprimatur on a company to justify their pay package,” said Thompson. “When the revolving door starts, and you have the team underneath not sure if this is going to work, they ask: ‘Should I give my best effort? Should I even stay?’ That leads to cultural issues, which were clearly at Yahoo.”

Tim Armstrong, Thompson said, unified AOL’s vision and kept the oars moving in the direction he felt it needed to move.

Another source with knowledge of AOL’s business and culture said Armstrong was exceptional at communicating and executing on his vision. If he had occasional dalliances with the consumer side, it was because he viewed AOL as a B2B company that would occasionally invest in B2C assets. And as a B2B company, Armstrong’s vision was “to make advertising as easy as ecommerce,” the source said.

Consequently, AOL’s ad tech acquisitions under Armstrong happened strategically and in quick succession: a video platform through Adap.tv in 2013; content personalization through Gravity, online ad attribution through Convertro and a video marketplace through Vidible in 2014; and a mobile ad platform through Millennial Media in 2015.

And while these various assets still aren’t fully united (and Verizon will have another huge task integrating Yahoo’s tech), the source noted that “they talk to each other really well.”

This unity – or partial unity – is possible because Armstrong brought in a team deep enough to execute his vision. Bob Lord – now at IBM – shepherded the growth of the ad stack as AOL’s president. Now that responsibility falls on Vidible founder Tim Mahlman.